Natural Gas Producers Win

Dept. of Energy Delivers the Final Blow

Every so often, the bureaucrats in a government agency spit out a research paper that shapes policy for years, even decades, to come.

The latest report is no different.

And this one isn't your typical snorefest. Granted, it's a pretty boring and dry read — but it is going to have far-reaching implications that will shape the future of energy policy, manufacturing, and exports.

It will also serve to redefine an ongoing war between domestic industries that has quietly been raging on Capitol Hill...

The short version: The United States will be exporting liquefied natural gas (LNG), and new export terminals will be approved.

The long version is more complex...

Because this report may have just turned the tide in a years-long war between industries — in favor of energy producers.

We're All Better Off If We Export

A report was created by NERA Economic Consulting for the Dept. of Energy to determine the impacts of increased LNG exports from the United States to international destinations.

Here are a couple of the key points from the report:

The report examined the impact of LNG exports in 63 scenarios — and found exports to be a net benefit for the economy under each of the conditions.

Natural gas output is seen rising to 31.41 trillion cubic feet (tcf) in 2035 from 27.99 tcf forecast last year. Natural gas production is expected to hit 33.21 tcf by 2040.

The surge in production would allow the country to be a net exporter of gas as early as 2016. Exports are expected to reach 4.4 billion cubic feet a day in exports by 2027.

While gas exports would have a positive effect on the economy overall, selling gas to foreign countries will raise prices for consumers. However, the increase in export revenues would offset this and lead to increases in real income for U.S. households.

Now that a government-sponsored report strongly backs exports, the battle between energy suppliers and energy users finds itself on entirely different ground.

In fact, fifteen frozen applications for export terminals will be reviewed after a two-month public comment period.

The Gov't Will Favor Suppliers

The topic has been contentious, to say the least...

The Obama administration has avoided approving new export terminal applications in anticipation of the report.

Energy producers have had a terrible year due to ten-year lows in natural gas prices and over-leveraged land deals to snap up reserves.

This is why utilities, manufacturers, and chemical companies are seeing a massive benefit to keeping domestic prices as close to the ten-year lows they hit in 2012 as possible. The lowered operating costs are a massive boon for their bottom line and profits.

Of course, they aren't arguing that they deserve profits more than other companies do; the entire situation was framed as a "jobs issue." Their argument was that anything that raises production costs will dampen hiring or even lead to a loss of jobs.

They also pointed out weak GDP growth, and suggested higher energy costs could drag the nation back into recession.

The government now has good reason to wholeheartedly disagree with them. And any company that wants to protest export terminals will have to convince the Dept. of Energy that their own information is wrong.

You can bet that all fifteen export terminal applicants will be falling over each other in line for the DoE to greenlight their project...

The only thing left to stop them is a review and market forces — small bones compared to the uphill climb they have experienced so far.

And you can bet the government is going to make sure a couple key players are going to rake in windfall profits, as will their investors.

Within the year, we can expect approval of several of the applications.

Picking the Winners

Of course, with only a small handful of the applications being approved, there will be clear winners and losers early on.

And keep in mind other countries area good five to ten years (at least) ahead when it comes to natural gas exports: Qatar, Russia, Indonesia, and Australia are already big players in the LNG export scene.

With up to a decade for development of the export terminals and a currently inadequate pipeline capacity, the companies looking to export will have to continue to survive and thrive in a fragmented market in the U.S.

Experts like Energy Investor editor Keith Kohl have been working to identify the companies that will make it through these lean times.

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Once export terminals and capacity is determined within a couple months, these stocks will be poised for big gains.

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